Brown Capital Management Funds
105 North Washington Street
Post Office Box 69
Rocky Mount, North Carolina 27802-0069
Telephone 919-972-9922
U.S. WATTS 800-525 FUND
Facsimile 919-442-4226
May 16, 1997
Dear Shareholder:
Some of the best investment letters and commentary I have read didn't seem like
the typical investment "stuff" at all. They weren't boring or dull or filled
with jargon. In fact, they were unconventional and told an interesting and
compelling story that interwove effortlessly, like a spider weaving a beautiful
web, pearls of investment wisdom and insight.
Each quarter in our investment letter we share our thoughts regarding the
economy, financial markets, and investment strategy. We very seldom receive any
feedback. However, our mid 1994 letter, with the captions - - what we know, what
we know for sure, what we think we know, and what we don't know - - prompted a
rousing favorable response. Why? Perhaps, although it did not tell a story, it
did weave a web of investment wisdom and insight in an unconventional and
interesting way. With two of the best back-to-back years in the stock market
since the 70% increase of 1975/76, perhaps we can be a little unconventional
once again in our portfolio letter. Interestingly, there is a close comparison
between the 1975/76 period of 37.2% and 23.8% respectively to the 1995/96 period
of 37.4% and 23% respectively. The closeness of the numbers is almost scary. So
much for the once upon a time . . . Now for the pearls of investment wisdom and
insight.
Paraphrasing, Warren Buffet once said that what you want to do in investing is
wait for the right pitch, and when the fielders are asleep, step up to the plate
and hit it! The problem with this market now is all the fielders are awake, and
the pitcher is not throwing an intentional walk. Thus, it is going to be tougher
to drive in that winning run. We are firmly convinced of three things with
respect to fiscal 1998. First, the absolute magnitude of the runs, i.e. stock
market returns, will be much less than the last two years. Second, the gap
between stock market returns and bond market returns will be much narrower, but
stocks will have a definite edge. Third, we can maintain our competitive edge,
in a tougher, more volatile, and less forgiving environment, which we believe
will characterize fiscal 1998.
<PAGE>
We are at a critical stage in the financial markets in our opinion. Some of the
best investment minds on Wall Street have reached diametrically opposed
conclusions concerning the prospects for the stock market. One camp is saying it
is "overvalued", and the other, with equal conviction, is saying it is "fairly
valued". Why? The difference lies in their underlying assumptions. The
overvalued camp believes that the economy will pick up steam, inflation will
rise, the Federal Reserve will tighten and drive up interest rates, and the
stock market will have a significant correction. The fairly valued camp believes
that the economy will have modest growth, 2 - 2.5% real GDP, modest inflation 3
- - 3.5%, the Federal Reserve will not intervene, corporate profits will increase
moderately, 8 - 10%, P/E's will neither expand nor contract, and the stock
market will rise in line with the earnings increase. This is what makes markets!
We are solidly in the latter camp. It is noteworthy, that neither camp is
arguing that the market is cheap. We agree. If current interest rate levels
persist or decline slightly, which is what we expect, our valuation work
confirms our market outlook. More importantly, and offering additional comfort,
is that more than 90% of the companies we own or have an investment interest in
offer potential returns greater than the market , based on our valuation work.
The "fear of heights" certainly comes into play in the current market
environment. One only has to look to this past July to get a glimpse of how
nasty things can get when perceptions and sentiments change abruptly. In July,
when the sentiment shifted to a heating up of the economy followed by a rise in
interest rates, the S&P 500 Index declined 5.2% and the Russell 2000 Index lost
9% of its value.
Looking ahead, we will concentrate on, refine, and improve upon the things that
have given us the competitive performance edge in the past. These can be briefly
summarized as follows: (1) A research driven, bottoms-up approach to selecting
companies, (2) Maintain superior portfolio characteristics - - prospective
earnings per share growth, profitability - - and pay less, or not too much more
than the market on 12 month forward estimated earnings, i.e. a lot of "bang for
the buck", and (3) Keep the portfolio "freshened-up" with securities that are
not only attractively valued with good potential upside, but with greater upside
than the market. As the character in Forrest Gump said after going through the
long list of shrimp recipes: bubble gum shrimp, popcorn shrimp . . . - - "and
that's about it." This is our winning strategy.
For your convenience, each of the funds now has a NASDAQ ticker symbol which can
be used to obtain NAV numbers from your broker as well as various electronic
medians. The symbols are as follows:
The Brown Capital Equity Fund - BCEIX
The Brown Capital Balanced Fund - BCBIX
The Brown Capital Small Fund - BCSIX
Sincerely,
/s/ Eddie C. Brown
Eddie C. Brown
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
Performance Update - $10,000 Investment
For the period from September 30, 1992 to March 31, 1997
BCM Equity S&P 500 w/Income
30-Sep-92 10,000.00 10,000.00
31-Dec-92 11,063.00 10,504.00
31-Mar-93 11,122.00 10,962.00
30-Jun-93 10,962.00 11,016.00
30-Sep-93 11,427.00 11,300.00
31-Dec-93 11,817.00 11,562.00
31-Mar-94 11,623.00 11,124.00
30-Jun-94 11,445.00 11,171.00
30-Sep-94 11,972.00 11,717.00
31-Dec-94 11,727.00 11,715.00
31-Mar-95 12,657.00 12,855.00
30-Jun-95 13,988.00 14,083.00
30-Sep-95 15,374.00 15,202.00
31-Dec-95 15,485.00 16,117.00
31-Mar-96 16,486.00 16,982.00
30-Jun-96 17,018.00 17,744.00
30-Sep-96 17,591.00 18,293.00
31-Dec-96 18,433.00 19,818.00
31-Mar-97 17,955.00 20,349.00
This graph depicts the performance of The Brown Capital Management Equity Fund
versus the S&P 500 w/Income Index. It is important to note The Brown Capital
Management Equity Fund is a professionally managed mutual fund while the index
is not available for investment and are unmanaged. The comparison is shown for
illustrative purposes only.
Average Annual Total Return
- ------------------------------------------------------
Since Inception One Year Three Years
- ------------------------------------------------------
13.89% 8.91% 15.60%
- ------------------------------------------------------
The graph assumes an initial $10,000 investment at September 30, 1992. All
dividends and distributions are reinvested.
At March 31, 1997, the Fund would have grown to $17,955 - total investment
return of 79.55% since September 30, 1992.
At March 31, 1997, a similar investment in the S&P 500 w/Income Index would have
grown to $20,349 - total investment return of 103.49% since September 30, 1992.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS - 95.81%
Building Materials - 1.27%
Fastenal Company 1,600 $56,000
----- -------
Chemicals - 1.77%
Hanna (M.A.) Company 3,675 78,094
----- ------
Computers - 17.08%
(a)Bay Networks 2,200 39,050
(a)EMC Corporation 3,650 128,662
Hewlett-Packard Company 1,600 85,200
(a)Cisco Systems, Inc. 3,200 154,000
(a)Microsoft Corporation 900 82,519
(a)Oracle Corporation 2,325 89,658
(a)Sterling Commerce, Inc. 2,972 86,188
(a)Sterling Software, Inc. 3,150 87,019
----- ------
752,296
-------
Electrical Equipment - 7.25%
Belden, Inc. 3,100 110,825
Honeywell, Inc. 1,200 81,450
(a)Vishay Intertechnology, Inc. 5,703 126,892
----- -------
319,167
-------
Electronics - 7.05%
General Electric Company 900 89,325
(a)Solectron Corporation 2,750 137,844
Intel Corporation 600 83,475
--- ------
310,644
-------
Entertainment - 3.79%
Carnival Corporation 4,510 166,870
----- -------
Financial - Banks, Money Center - 2.70%
Chase Manhattan Corporation 1,270 118,904
----- -------
Financial Services - 7.50%
Equifax, Inc. 4,150 113,088
Green Tree Financial Corporation 3,250 109,687
T. Rowe Price Associates 2,900 107,663
----- -------
330,438
-------
Household Products & Housewares - 3.00%
Newell Company 3,950 132,325
----- -------
Insurance - Life & Health - 2.13%
AFLAC, Inc. 2,412 93,766
----- ------
Lodging - 0.28%
(a)Choice Hotels International, Inc. 900 12,150
--- ------
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Medical - Biotechnology - 2.28%
(a)Amgen, Inc. 1,800 $100,575
----- --------
Medical - Hospital Management & Service - 4.59%
(a)Health Care and Retirement Corporation 3,050 87,687
United Healthcare Corporation 2,400 114,300
----- -------
201,987
-------
Medical Supplies - 0.96%
Johnson & Johnson 800 42,300
--- ------
Miscellaneous - Manufacturing - 3.65%
Illinois Tool Works, Inc. 1,100 90,200
Pall Corporation 3,050 70,531
----- ------
160,731
-------
Pharmaceuticals - 6.04%
(a)Alza Corporation 1,400 38,500
Cardinal Health, Inc. 2,375 129,141
(a)R.P. Scherer Corporation 1,900 98,562
----- ------
266,203
-------
Real Estate - 4.61%
The Rouse Company 3,100 90,675
Post Properties, Inc. 2,950 112,469
----- -------
203,144
-------
Restaurants & Food Service - 4.51%
(a)The Cheesecake Factory 4,100 80,975
Cracker Barrel Old Country Store, Inc. 4,500 117,562
----- -------
198,537
-------
Retail - Apparel - 2.06%
Nordstrom, Inc. 2,400 90,900
----- ------
Retail - Department Stores - 2.34%
Dollar General Corporation 3,296 103,000
----- -------
Retail - Specialty Line - 8.04%
(a)AutoZone, Inc. 5,100 115,387
Casey's General Stores, Inc. 4,900 94,325
Home Depot, Inc. 2,700 144,450
----- -------
354,162
-------
Utilities - Gas - 2.91%
MCN Corporation 4,550 127,969
----- -------
Total Common Stock (Cost $3,776,095) 4,220,162
---------
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1997
- --------------------------------------------------------------------------------
Principal Value
Amount (note 1)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (b) - 4.47%
Wachovia Bank, dated March 31, 1997, $197,108 $197,108
6.50%, due April 1, 1997 -------- --------
(Cost $197,108)
Total Value of Investments (Cost $3,973,203 (c)) 100.28% $4,417,270
Liabilities In Excess of Other Assets -0.28% (12,250)
---- -------
Net Assets 100.00% $4,405,020
====== ==========
(a) Non-income producing investment.
(b) The repurchase agreement is fully collateralized by U. S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other funds administered by The Nottingham Company.
(c) Aggregate cost for financial reporting and federal income tax purposes is
the same. Unrealized appreciation (depreciation) of investments for
financial reporting and federal income tax purposes is as follows:
Unrealized appreciation $527,610
Unrealized depreciation (83,543)
----------
Net unrealized appreciation $444,067
==========
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31,1997
ASSETS
Investments, at value (cost $3,973,203) $4,417,270
Income receivable 5,200
Prepaid expenses 2,222
Due from advisor (note 2) 2,771
Other assets 1,487
----------
Total assets 4,428,950
----------
LIABILITIES
Accrued expenses 2,366
Payable for investment purchases 21,534
Disbursements in excess of cash on demand deposit 30
----------
Total liabilities 23,930
----------
NET ASSETS
(applicable to 265,144 Institutional Class Shares outstanding $4,405,020
; unlimited shares of no par value ==========
beneficial interest authorized)
NET ASSET VALUE, REDEMPTION AND REPURCHASE PRICE PER SHARE
PER INSTITUTIONAL CLASS SHARE
($4,405,020 / 265,144 shares) $16.61
==========
NET ASSETS CONSIST OF
Paid-in capital $3,893,671
Undistributed net investment income 39
Undistributed net realized gain on investments 67,243
Net unrealized appreciation on investments 444,067
----------
$4,405,020
==========
See accompanying notes to financial statements
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1997
INVESTMENT INCOME
Income
Interest $19,249
Dividends 26,587
-----------
Total income 45,836
-----------
Expenses
Investment advisory fees (note 2) 19,581
Fund administration fees (note 2) 7,531
Custody fees 5,885
Registration and filing administration fees (note 2) 5,539
Fund accounting fees (note 2) 21,000
Audit fees 9,592
Legal fees 3,504
Securities pricing fees 3,201
Shareholder recordkeeping fees 677
Other fees 2,175
Shareholder servicing expenses 3,208
Registration and filing expenses 7,298
Printing expenses 1,823
Trustee fees and meeting expenses 6,752
Other operating expenses 3,850
-----------
Total expenses 101,616
-----------
Less:
Expense reimbursements (note 2) (45,950)
Investment advisory fees waived (note 2) (19,581)
-----------
Net expenses 36,085
-----------
Net investment income 9,751
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions 64,344
Increase in unrealized appreciation on investments 104,676
-----------
Net realized and unrealized gain on investments 169,020
-----------
Net increase in net assets resulting from operation $178,771
===========
See accompanying notes to financial statements
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income $9,751 $82
Net realized gain from investment transactions 64,344 162,208
Increase in unrealized appreciation on investments 104,676 224,377
------- -------
Net increase in net assets resulting from operations 178,771 386,667
------- -------
Distributions to shareholders from
Net investment income (9,794) 0
Net realized gain from investment transactions (123,813) (29,243)
-------- -------
Decrease in net assets resulting from distributions (133,607) (29,243)
Capital share transactions
Increase in net assets resulting from capital share transactions (a) 2,393,994 478,418
--------- -------
Total increase in net assets 2,439,158 835,842
NET ASSETS
Beginning of period 1,965,862 1,130,020
--------- ---------
End of period (including undistributed net investment income $4,405,020 $1,965,862
of $39 in 1997 and $82 in 1996) ========== ==========
(a) A summary of capital share activity follows:
------------------------------------------------------------------
Year ended Year ended
March 31, 1997 March 31, 1996
------------------------------------------------------------------
Shares Value Shares Value
---------- ---------- ---------- ----------
Shares sold 151,410 $2,576,321 35,834 $522,232
Shares issued for reinvestment
of distributions 8,025 133,540 1,789 26,306
----- ------- ----- ------
159,435 2,709,861 37,623 548,538
Shares redeemed (18,655) (315,867) (4,695) (70,120)
------- -------- ------ -------
Net increase 140,780 $2,393,994 32,928 $478,418
======= ========== ====== ========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
- ---------------------------------------------------------------------------------------------------------------------------
For the
period from
August 4,1992
(commencement
Year ended Year ended Year ended Year ended of operations)
March 31, March 31, March 31, March 31, to March 31,
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.81 $12.36 $11.48 $11.05 $10.00
Income from investment operations
Net investment income (loss) 0.05 0.00 0.00 (0.02) (0.02)
Net realized and unrealized gain on investment 1.36 3.72 1.01 0.52 1.07
---- ---- ---- ---- ----
Total from investment operations 1.41 3.72 1.01 0.50 1.05
---- ---- ---- ---- ----
Distributions to shareholders from
Net investment income (0.05) 0.00 0.00 0.00 0.00
Net realized gain from investment transactions (0.56) (0.27) (0.13) (0.07) 0.00
----- ----- ----- ----- ----
Total distributions (0.61) (0.27) (0.13) (0.07) 0.00
----- ----- ----- ----- ----
Net asset value, end of period $16.61 $15.81 $12.36 $11.48 $11.05
====== ====== ====== ====== ======
Total return 8.91 % 30.25 % 8.90 % 4.51 % 10.51 %
==== ===== ==== ==== =====
Ratios/supplemental data
Net assets, end of period $4,405,020 $1,965,862 $1,130,020 $717,896 $263,814
========== ========== ========== ======== ========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 3.37 % 5.58 % 8.32 % 11.86 % 17.97 % (a)
After expense reimbursements and waived fees 1.20 % 1.56 % 2.00 % 2.00 % 1.91 % (a)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (1.85)% (4.20)% (6.41)% (10.19)% (16.47)% (a)
After expense reimbursements and waived fees 0.32 % 0.01 % (0.11)% (0.36)% (0.51)% (a)
Portfolio turnover rate 34.21 % 48.06 % 7.29 % 48.05 % 3.26 %
Average broker commissions per share (b) $0.05
(a)Annualized.
(b) Represents total commission paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
See accompanying notes to financials
</TABLE>
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Brown Capital Management Equity Fund (the "Fund") is a diversified series of
shares of beneficial interest of The Nottingham Investment Trust II (the
"Trust"). The Trust, an open-ended investment company, was organized on October
18, 1990 as a Massachusetts Business Trust and is registered under the
Investment Company Act of 1940, as amended. The investment objective of the Fund
is to seek capital appreciation principally through investments in equity
securities, such as common and preferred stocks and securities convertible into
common stocks. The Fund began operations on August 11, 1992.
Pursuant to a plan approved by the Board of Trustees of the Trust, the existing
single class of shares of the Fund was redesignated as the Institutional Class
shares of the Fund on June 15, 1995 and an additional class of shares, the
Investor Class shares, was authorized. To date, only Institutional Class shares
have been issued by the Fund. The Institutional Class shares are sold without a
sales charge and bear no distribution and service fees. The Investor Class
shares will be subject to a maximum 3.50% sales charge and will bear
distribution and service fees which may not exceed 0.50% of the Investor Class
shares' average net assets annually. The following is a summary of significant
accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are carried at
value. Securities listed on an exchange or quoted on a national market
system are valued at the last sales price as of 4:00 p.m. New York time on
the day of valuation. Other securities traded in the over-the-counter
market and listed securities for which no sale was reported on that date
are valued at the most recent bid price. Securities for which market
quotations are not readily available, if any, are valued by using an
independent pricing service or by following procedures approved by the
Board of Trustees. Short-term investments are valued at cost which
approximates value.
B. Federal Income Taxes - No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
make sufficient distributions of taxable income to relieve it from all
federal income taxes.
C. Investment Transactions - Investment transactions are recorded on the trade
date. Realized gains and losses are determined using the specific
identification cost method. Interest income is recorded daily on an accrual
basis. Dividend income is recorded on the ex-dividend date.
D. Distributions to Shareholders - The Fund may declare dividends quarterly,
payable in March, June, September and December, on a date selected by the
Trust's Trustees. In addition, distributions may be made annually in
December out of net realized gains through October 31 of that year.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund may make a supplemental distribution subsequent to the end of its
fiscal year ending March 31.
E. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
F. Repurchase Agreements - The Fund may acquire U. S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
agreement transaction occurs when the Fund acquires a security and
simultaneously resells it to the vendor (normally a member bank of the
Federal Reserve or a registered Government Securities dealer) for delivery
on an agreed upon future date. The repurchase price exceeds the purchase
price by an amount which reflects an agreed upon market interest rate
earned by the Fund effective for the period of time during which the
repurchase agreement is in effect. Delivery pursuant to the resale
typically will occur within one to five days of the purchase. The Fund will
not enter into a repurchase agreement which will cause more than 10% of its
net assets to be invested in repurchase agreements which extend beyond
seven days. In the event of the bankruptcy of the other party to a
repurchase agreement, the Fund could experience delays in recovering its
cash or the securities lent. To the extent that in the interim the value of
the securities purchased may have declined, the Fund could experience a
loss. In all cases, the creditworthiness of the other party to a
transaction is reviewed and found satisfactory by the Advisor. Repurchase
agreements are, in effect, loans of Fund assets. The Fund will not engage
in reverse repurchase transactions, which are considered to be borrowings
under the Investment Company Act of 1940, as amended.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Brown Capital Management, Inc.
(the "Advisor") provides the Fund with a continuous program of supervision of
the Fund's assets, including the composition of its portfolio, and furnishes
advice and recommendations with respect to investments, investment policies and
the purchase and sale of securities. As compensation for its services, the
Advisor receives a fee at the annual rate of 0.65% of the Fund's first $25
million of average daily net assets and 0.50% of average daily net assets over
$25 million.
The Advisor intends to voluntarily waive all or a portion of its fee and
reimburse expenses of the Fund to limit total Fund operating expenses to 1.20%
of the average daily net assets of the Fund. There can be no assurance that the
foregoing voluntary fee waivers or reimbursements will continue. The Advisor has
voluntarily waived its fee amounting to $19,581 ($0.11 per share) and has
voluntarily agreed to reimburse $45,950 of the Fund's operating expenses for the
year ended March 31, 1997.
The Fund's administrator, The Nottingham Company (the "Administrator"), provides
administrative services to and is generally responsible for the overall
management and day-to-day operations of the Fund pursuant to an accounting and
administrative agreement with the Trust. As compensation for its services, the
Administrator receives a fee at the annual rate of 0.25% of the Fund's first $10
million of average daily net assets, 0.20% of the next $40 million of average
daily net assets, 0.175% of the next $50 million of average daily net assets,
and 0.15% of average daily net assets over $100 million. The Administrator also
receives a monthly fee of $1,750 for accounting and recordkeeping services.
Additionally, the Administrator charges the Fund for servicing of shareholder
accounts and registration of the Fund's shares. The contract with the
Administrator provides that the aggregate fees for the aforementioned
administration, accounting and recordkeeping services shall not be less than
$3,000 per month. The Administrator also charges the Fund for certain expenses
involved with the daily valuation of portfolio securities.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
Certain Trustees and officers of the Trust are also officers of the Advisor, the
distributor or the Administrator.
At March 31, 1997, the Advisor and its officers held 9241 shares or 3.49% of the
Fund shares outstanding.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $3,277,776 and $915,583, respectively, for the year ended March 31,
1997.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
The Nottingham Investment Trust II:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Brown Capital Management Equity Fund (a
portfolio of The Nottingham Investment Trust II) as of March 31, 1997, and the
related statements of operations and changes in net assets, and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statement of changes in net assets for the year ended
March 31, 1996 and the financial highlights for the four years in the period
ended March 31, 1996 were audited by other auditors, whose reports thereon dated
May 14, 1996, expressed an unqualified opinion.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of March 31, 1997 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Brown Capital Management Equity Fund as of March 31, 1997, the results of its
operations, the changes in its net assets and its financial highlights for the
year then ended in conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
April 25, 1997
